The economics of divestiture : ex ante valuation and ex post evaluation
Jones, Leroy P. | Tandon, Pankaj | Vogelsang, Ingo
Public divestiture is the transfer of enterprises from government to private ownership. This paper studies the divestiture decision by focusing on the various values of the public enterprise. The problem is summed up by the need to identify relationships between, and the determinants of, the sale price and three fundamental values of the enterprise: social value under continued government operation; social value under private operation; and private value under private operation. By focusing on price and value, some light can be shed on the following questions related to privatization: should the enterprise be sold? To whom should it be sold? At what price should it be sold? The study deals with these questions in the context of differing market assumptions, and takes into account a number of factors, such as shadow-pricing, taxes and synergies. The study comments on the applications of the method for ex post evaluation of divestiture.
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